Viacom, DirecTV reach deal, end blackout

Viacom programming to be available on DirecTV hand-held devices

DirecTV Group's 20 million U.S. subscribers are getting back their favorite shows after the satellite TV provider reached a deal to restore Viacom Inc.'s networks, but the size and scope of the high-profile dispute may have changed the nature of future programming battles.

The loss of 26 networks to 20 million homes for nine full days means the size, length and scope of this programming blackout was unprecedented to date in the U.S. pay-TV industry. Contentious relationships between program distributors and program makers are on the rise as the industry's growth appears to have peaked.

"The Viacom/DirecTV dispute may be remembered as a critical turning point in programmer/distributor negotiations," said Bernstein Research analyst Todd Juenger. "For the first time in memory, it was the distributor that won the public relations war."

While distributors typically take the brunt of the complaints about network blackouts, DirecTV argued that the increasing number of disputes with other distributors had educated customers that they would face the same problems with their rivals.

"By showing their willingness to take a blackout, and arguably winning the battle for the hearts and minds of their customers as a result, DirecTV may extract better terms from other programmers down the road," said Juenger.

Viacom said it restored all of its cable networks, including Nickelodeon, Comedy Central, MTV and BET, which became unavailable to DirecTV customers from July 10. The channels went off air after DirecTV balked at what it saw as a steep increase which it said Viacom was demanding.

The companies did not disclose the financial terms of the new contract. But people familiar with the talks said DirecTV will pay Viacom around $600 million in the first year of the seven-year contract with subsequent mid-single digit percentage increases. That would be a 20 percent increase over the previous contract's $500 million a year that was publicly stated by DirecTV Chief Executive Mike White.

DirecTV previously said Viacom sought a 30 percent increase in carriage fees, equaling $1 billion over five years -- a boost that DirecTV said was not justified.

Viacom countered that its networks represented about 20 percent of all viewing on DirecTV but accounted for less than 5 percent of its programming costs.

Viacom CEO Philippe Dauman said in the memo to staff that on Thursday afternoon the two companies had made a "decisive push to hammer out a deal that we believe is fair and mutually beneficial."

In particular, DirecTV had pushed back against having the Epix movie channel tacked on the agreement, at a price of around $500 million.

"They took Epix off the table in the last 24 hours and we could move ahead with a deal," said Derek Chang, DirecTV's top programming negotiator.

"The attention surrounding this unnecessary and ill-advised blackout by Viacom has accomplished one key thing: it serves notice to all media companies that bullying TV providers and their customers with blackouts won't get them a better deal," said Chang.

On July 1, AMC Networks, the company behind shows such as "Breaking Bad," "The Walking Dead" and "Mad Men," was removed from the Dish Network after the two companies failed to reach a new contract.

Similar blackouts have taken place in recent years between Cablevision and Walt Disney Co.'s ABC; News Corp. and Cablevision; and News Corp and Dish; and Time-Warner Cable Inc. and Hearst Corp. Time Warner Cable Inc., the second largest U.S. cable provider, said late Thursday it had reached a deal with Hearst Corp. after 16 broadcast stations were blacked out in 14 markets for eight to 12 days.

DirecTV and Viacom had been in talks over a new contract but could not agree on terms before the July 10 deadline. The nine days of the blackout resulted in Viacom's channels such as Nickelodeon losing ground to competitors like The Disney Channel. DirecTV also shed some customers in the period.

The new contract will let DirecTV customers view Viacom's programming on tablets, laptops, handhelds and other personal devices. Viacom shares were up 9 cents at $46.74 on the Nasdaq on Friday. DirecTV shares were down 6 cents at $48.89, also on the NYSE.